Are you cut out for success as a franchisee?

LESS than seven out of ten... these are the odds of survival for more than three years - never mind achieving success - for a new business start-up in the UK today. According to survival rate statistics of VAT registered businesses released earlier this year by the Small Business Service, the survival rate for UK businesses over a three year period is 68.9 per cent.

That means that almost one third of the UK's entrepreneurs that plough their business loans and nest eggs into new businesses will lose out to poor marketing, bad organisation, wrongly identified markets, inaccurate financial forecasts, management mistakes, shifting economic conditions... or any number of other pitfalls littering the road to building a successful business.

Statistics such as these turn many aspiring entrepreneurs off the idea of starting their own business. However, some 33,500 of the UK's business people have chosen to invest their money into a more proven avenue to business success by purchasing a franchise.

By investing in a franchise, the majority of franchisees will ensure that their business concept is:

• offering a product or service with proven demand
• profitable
• nationally branded
• constructed with professional systems and procedures
• set up with realistic financial forecasts
• supported by experienced management staff
• opted into buying power greater than on its own

Their franchise provides them with exclusive access to the brand, systems and training of their franchisor in their protected territory for the lifetime of the agreement, all secured through the investment of an initial franchise fee and payment of an ongoing management service fee (typically a percentage of their turnover - currently averaging 8.1 per cent*).

However, despite all these benefits a franchise does not guarantee success. Franchisors that are committed to building successful franchise networks put a lot of effort into qualifying franchisee candidates. The individuals they are seeking will have the ability to soak up their knowledge and systems and develop a successful business through a mixture of hard work and the proper implementation of their business concept.

So how do you know if you are truly suited to owning and operating your own business? Let's look at how franchisors assess franchisee candidates:

MOTIVATION
One of the principles of franchising that elevates the potential for success above simple company-owned expansion is the personal commitment of the franchisee. Most franchisors seek franchisees that are looking to run their businesses in a hands-on fashion because they want to take advantage of that desire for business success inherent in a business owner, the desire that just cannot be matched by a salaried manager. This is why franchised operations will tend to offer greater quality of service and place more emphasis on customer satisfaction. Franchisors are therefore seeking prospective franchisees that have a genuine enthusiasm for their industry, their service or product, and for building a successful business. This enthusiasm is usually prized more highly than industry experience - the franchisor's training and support should overcome any disparity in this area.

OPERATING THE SYSTEM
In buying a franchise, you are investing in a business blueprint proven and finetuned through a pilot operation and, with established brands, through the early experiences of the franchisee network. Franchisors are therefore looking to award their franchises to individuals that fit into a certain personality-type - one which Americans have come to dub the 'in-trepreneur' in recognition of its combination of the business leading ability of an entrepreneur with a willingness to work within the confines of the franchisor's successful systems and procedures. This is partly because the franchisor has already gone through the trial and error development, learned how to avoid mistakes and performed the finetuning in developing its business package on behalf of the franchisee. But this is also because the franchisor is seeking to encourage standardisation of its products and services nationwide - this ensures that no franchisee is producing products or services to a different standard to the rest of the network which could spread a bad name for the brand. Think of the McDonald's commitment to the standardisation of its Big Mac worldwide to understand how important this is.

A franchisee that comes to resent the authority of the franchisor is one that was never suited to become a franchisee in the first place, and these situations are easier to avoid than to remedy. If you are the type of entrepreneur that wants total control to tinker with the business, you may be better off considering other avenues of business ownership.

HARD WORKING
The decision to become self-employed involves a great deal of soul-searching - what prompts it can as often be the desire to escape employment as the drive to build a successful organisation. However, if you're interested in becoming a business owner in order to cut down your hours, think again. With the future of your business in your own hands you won't be able to switch off at 5pm, you may find yourself working six days a week until well past this time in the initial stages. Franchisors realise this but, while many will offer plenty of support to help you get your business off the ground, they can't do it for you.

Of course, you must be aware of keeping a balance between building the business and the rest of your life. With no boss to make sure you turn up on time or to tell you to go home, you must ensure you are neither distracted by nor neglecting commitments outside work. With franchisor support this is much easier than in a self start-up, as you can rely on the experience of the franchisor to guide you.

FINANCIAL CONSIDERATIONS
Franchises are very affordable, with some superb opportunities available for an initial investment under £20,000 featured in the pages of this very magazine. Additional funding is readily available from the banking industry, within which there is a great deal of recognition for the reduced risk inherent in franchising. Like you, many bank managers will be well aware of the survival rate of franchises compared with that of small businesses. Many banks have now set up specialist franchise departments and have developed relationships with franchise brands seeking to assist their franchisees in winning loans.

However, the income derived from owning your own business will prove much more irregular than that which is earned through employment. There is no pension or sick pay - barring what you set up for yourself - and much of what the business does earn may be required for reinvestment as you grow your operation. Can you deal with this insecurity, and are you able to support yourself through it until your business start-up finds its feet? Many franchisors will help you develop your business plan, but it will take determination on your part to see it through.

MANAGEMENT SKILLS
Franchised businesses employ 364,000 people in the UK - that's more than 10 per franchisee. As your business grows you will need to take on and lead staff. Franchisors will deal with management skills during the initial franchisee training programme, but there are many that are reliant on your own personal abilities. Reading through this magazine you will find that, while many franchisors point out the diversity of the backgrounds of its franchisees, they still require candidates with communication/people skills.

These skills are not only useful in dealing with staff - they help in dealing with clients as well. As with any business start-up, a franchisee will have to wear a variety of hats - that of manager, salesperson, entrepreneur, administrator and worker. An understanding of people and the ability to win confidence are vital to building a successful business.

THE NEXT STEP
Franchising is an exciting and growing industry which the British Franchise Association reports now turns over £10.3 billion per year. It has identified over 750 brands involved in franchising and 92 per cent of their franchisees are reporting profits. The rewards are there for the winning, so if you have the right stuff for operating a franchised business, see the table below to learn how to begin a serious investigation of the opportunities currently being offered.

*According to the 2006 BFA/Natwest UK Franchise Survey